Subscription business model

The subscription business model is a business model in which a customer must pay a recurring price at regular intervals for access to a product or service. The model was pioneered by publishers of books and periodicals in the 17th century,[1] and is now used by many businesses and websites.

Subscriptions

Rather than selling products individually, a subscription offers periodic (monthly. yearly, or seasonal) use or access to a product or service, or, in the case of performance-oriented organizations such as opera companies, tickets to the entire run of some set number of (eg., five to fifteen) scheduled performances for an entire season. Thus, a one-time sale of a product can become a recurring sale and can build brand loyalty.

Membership fees to some types of organizations, such as trade unions, are also known as subscriptions. Industries that use this model include mail order book sales clubs and music sales clubs, private webmail providers, cable television, satellite television providers with pay television channels, satellite radio, telephone companies, mobile network operators, internet providers, software publishers, websites (e.g., blogging websites), business solutions providers, financial services firms, health clubs, lawn mowing and snowplowing services, and pharmaceuticals, as well as the traditional newspapers, magazines, and academic journals.

Renewal of a subscription may be periodic and activated automatically so that the cost of a new period is automatically paid for by a pre-authorized charge to a credit card or a checking account. A common variation of the model in online games and on websites is the freemium model, in which a first tier of content is free, but access to premium features (for example, game power-ups or article archives) is limited to paying subscribers.

Types and examples

There are different categories of subscriptions:

  • A subscription for a fixed set of goods or services.
  • A subscription for unlimited use of a service or collection of services. Usage may be personal and non-transferable, for a family, or under certain circumstances, for a group utilizing a service at one time. In the publishing industry, a subscription to a bundle of several journals, at a discounted price, is known as a "big deal".[2]
  • A pay-as-you-go subscription where you subscribe to purchase a product periodically. This is also known as the convenience model because it is a convenience for the customer to not have to remember to go find their product and buy it periodically. This model has been popularized by companies like Dollar Shave Club, Birchbox, and OrderGroove. Based on their success, many other retailers have begun to offer subscription model services.[3]
    • For example, a subscription to a rail pass by a company may not be individualized, but might permit all employees of that firm to use the service. For goods with an unlimited supply and for many luxury services, subscriptions of this type are rare.
  • A subscription for basic access or minimal service plus some additional charge depending on usage. A basic telephone service pays a pre-determined fee for monthly use but may have extra charges for additional services such as long-distance calls, directory services and pay-per-call services. When the basic service is offered free-of-charge, this business model is often referred to as freemium.

Effects

Vendors

Businesses benefit because they are assured a predictable and constant revenue stream from subscribed individuals for the duration of the subscriber's agreement. Not only does this greatly reduce uncertainty and the riskiness of the enterprise, but it often provides payment in advance (as with magazines, concert tickets), while allowing customers to become greatly attached to using the service and, therefore, more likely to extend by signing an agreement for the next period close to when the current agreement expires. source from Johnson Cornel, university of TUIR.

In integrated software solutions, for example, the subscription pricing structure is designed so that the revenue stream from the recurring subscriptions is considerably greater than the revenue from simple one-time purchases. In some subscription schemes (like magazines), it also increases sales, by not giving subscribers the option to accept or reject any specific issue. This reduces customer acquisition costs, and allows personalized marketing or database marketing. However, a requirement of the system is that the business must have in place an accurate, reliable and timely way to manage and track subscriptions.

From a marketing-analyst perspective, it has the added benefit that the vendor knows the number of currently active members since a subscription typically involves a contractual agreement. This so-called 'contractual' setting facilitates customer relationship management to a large extent because the analyst knows who is an active customer and who recently churned.[4]

Additional benefits include a higher average customer lifetime value (ACLV) than that of nonrecurring business models, greater customer inertia and a more committed customer base as it transitions from purchase to opt-out decisions, and more potential for upselling and cross-selling other products or services.[5]

Some software companies such as Adobe and Autodesk have moved from a perpetual licensing model to a subscription model, known as "software as a service." This move has significant implications for sales and customer support organizations. Over time, the need to close large deals decreases resulting in lower sales costs. However the size of the customer support organization increases so that the paying customers stay happy.[6]

Customers

Consumers may find subscriptions convenient if they believe that they will buy a product on a regular basis and that they might save money. For repeated delivery of the product or service, the customer also saves time.

Subscriptions which exist to support clubs and organizations call their subscribers "members" and they are given access to a group with similar interests. An example might be the Computer Science Book Club.

Subscription pricing can make it easier to pay for expensive items, since it can often be paid for over a period of time and thus can make the product seem more affordable. On the other hand, most newspaper and magazine-type subscriptions are paid upfront, and this might actually prevent some customerfixed price may be an advantage for consumers using those services frequently. However, it could be a disadvantage to a customer who plans to use the service frequently, but later does not. The commitment to paying for a package may have been more expensive than a single purchase would have been. In addition, subscription models increase the possibility of vendor lock-in, which can have fatally business-critical implications for a customer if its business depends on the availability of a software: For example, without an online connection to a licensing server to verify the licensing status every once in a while, a software under a subscription-model would typically stop functioning or fall back to the functionality of a freemium version, thereby making it impossible (to continue) to use the software in remote places or in particularly secure environments without internet access, after the vendor has stopped supporting the version or software, or even has gone out of business thereby leaving the customer without a chance to renew the subscription and access his own data or designs maintained with the software (in some businesses it is important to have full access even to old files for decades). Also, consumers may find repeated payments to be onerous.

Subscription models often require or allow the business to gather substantial amounts of information from the customer (such as magazine mailing lists) and this raises issues of privacy.

A subscription model may be beneficial for the software buyer if it forces the supplier to improve its product. Accordingly, a psychological phenomenon may occur when a customer renews a subscription, that may not occur during a one-time transaction: if the buyer is not satisfied with the service, he/she can simply leave the subscription to expire and find another seller.[7]

This is in contrast to many one-time transactions, when customers are forced to make significant commitments through high software prices. Some feel that historically, the "one-time-purchase" model does not give sellers incentive to maintain relationships with their customers (after all, why should they care once they've received their money?). Some who favor a subscription model for software do so because it may change this situation.

The subscription model should align customer and vendor toward common goals, as both stand to benefit if the customer receives value from the subscription. The customer that receives value is more likely to renew the subscription and possibly at an increased rate. The customer that does not receive value will, in theory, return to the marketplace.

Legal

A customer who is placed in a jail or prison can be billed continuously for subscription services which may render them without funds upon release.

Environment

Because customers may not need or want all the items received, this can lead to waste and an adverse effect on the environment, depending on the products. Greater volumes of production, greater energy and natural resource consumption, and subsequently greater disposal costs are incurred.

Subscription models might also create the opposite effect. This can be illustrated by subscribing to a service for mowing lawns. The effective use of a single mower increases when mowing for a collection of homes, instead of every family owning their own lawnmower which is not used as much as the service providing mower, the use of resources for producing lawnmowers, therefore, decreases while lawns stay cut.

See also

References

  1. ^ Clapp, Sarah L. C. (November 1931), "The Beginnings of Subscription Publication in the Seventeenth Century", Modern Philology, Chicago: The University of Chicago Press, 29 (2): 199–224, doi:10.1086/387957, JSTOR 433632
  2. ^ Sally Morris; et al. (2013). Handbook of Journal Publishing. Cambridge University Press. pp. 163–164. ISBN 978-1-107-02085-6.
  3. ^ Retail Subscription Models! Who's doing what? [EXPERT ROUND-UP
  4. ^ J. Burez & Dirk Van den Poel (2006). "CRM at a Pay-TV Company: Using Analytical Models to Reduce Customer Attrition by Targeted Marketing for Subscription Services". Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium. econpapers.repec.org.
  5. ^ Subbly.co: Best Practices for Online Business Models, retrieved 9 July 2014
  6. ^ Software Pricing Trends (PDF), retrieved 14 August 2016
  7. ^ Alorie Gilbert (March 3, 2004). "Software Execs Bash Their Industry's Approach". news.com.com. Archived from the original on May 27, 2012.
DigiGuide

DigiGuide is a digital TV guide in the UK.

Fee

A fee is the price one pays as remuneration for rights or services. Fees usually allow for overhead, wages, costs, and markup.

Traditionally, professionals in the United Kingdom (and previously the Republic of Ireland) receive a fee in contradistinction to a payment, salary, or wage, and often use guineas rather than pounds as units of account. Under the feudal system, a Knight's fee was what was given to a knight for his service, usually the usage of land.

A contingent fee is an attorney's fee which is reduced or not charged at all if the court case is lost by the attorney.

A service fee, service charge, or surcharge is a fee added to a customer's bill. The purpose of a service charge often depends on the nature of the product and corresponding service provided. Examples of why this fee is charged are: travel time expenses, truck rental fees, liability and workers' compensation insurance fees, and planning fees. UPS and FedEx have recently begun surcharges for fuel.

Restaurants and banquet halls charging service charges in lieu of tips must distribute them to their wait staff in some US states (e.g., Massachusetts, New York, Montana), but in the state of Kentucky may keep them.

A fee may be a flat fee or a variable one, or part of a two-part tariff.

A membership fee is charged as part of a subscription business model.

List of most-played video games by player count

This is a list of the most-played video games ordered by their overall player count, including by registered accounts, monthly active users, subscriptions, or owners of a free-to-play game. Do not list games by official sales figures here; those are to be added to the list of best-selling video games page instead. This list is also not comprehensive, because player counts are not always publicly available, reliable, or up to date.

This list does not include mobile games, unless versions of the game have also been released on non-mobile platforms. For a list of them, see the list of most-played mobile games by player count.

Meal delivery service

A meal delivery service (MDS) is a service that sends customers fresh, prepared meals delivered to their homes. These services individually package pre-portioned meals to assist with eating a healthy diet. These services cook and prepare meals for customers. Meals may come in small tupperware containers and are often labeled with nutritional information. There are also many options for specific diet types like vegetarian and vegan. These services often operate on a subscription business model rather than by individual order as in pizza delivery or with the broader category of online food ordering.

An alternate type of meal delivery service is a meal kit, which distributes ingredients and recipes that customers prepare themselves.

Microsoft Office

Microsoft Office (or simply Office) is a family of client software, server software, and services developed by Microsoft. It was first announced by Bill Gates on August 1, 1988, at COMDEX in Las Vegas. Initially a marketing term for an office suite (bundled set of productivity applications), the first version of Office contained Microsoft Word, Microsoft Excel, and Microsoft PowerPoint. Over the years, Office applications have grown substantially closer with shared features such as a common spell checker, OLE data integration and Visual Basic for Applications scripting language. Microsoft also positions Office as a development platform for line-of-business software under the Office Business Applications brand. On July 10, 2012, Softpedia reported that Office is used by over a billion people worldwide.Office is produced in several versions targeted towards different end-users and computing environments. The original, and most widely used version, is the desktop version, available for PCs running the Windows and macOS operating systems. Office Online is a version of the software that runs within a web browser, while Microsoft also maintains Office apps for Android and iOS.

Since Office 2013, Microsoft has promoted Office 365 as the primary means of obtaining Microsoft Office: it allows use of the software and other services on a subscription business model, and users receive free feature updates to the software for the lifetime of the subscription, including new features and cloud computing integration that are not necessarily included in the "on-premises" releases of Office sold under conventional license terms. In 2017, revenue from Office 365 overtook conventional license sales.

The current on-premises, desktop version of Office is Office 2019, released on September 24, 2018.

NeuroNation

NeuroNation is a cognitive training website and app that was launched in 2011. The app is available on Android and iOS and as of 2015, was offered in eight languages. The app is well-designed but expensive.Its use is reimbursed by several German health insurers, including Deutsche BKK. While the NeuroNation app and similar ones are heavily advertised with claims of improving general cognitive function, there is no evidence to show that NeuroNation or similar programs do so; at most they improve performance in the training tasks given in the program.It was created by coders Rojahn Ahmadi, Ilya Shabanov, and Jakob Futorjanski in a collaboration with psychologists of the Free University of Berlin and Technische Universität Dortmund. Their venture was funded by a bank loan, a grant from Beuth University of Applied Sciences Berlin, and by 50000EUR raised on the crowdfunding site Seedmatch. The online platform was launched in 2011, and initially served Germany, Austria, and Switzerland. In 2014, Der Spiegel and XLHealth AG bought a 25% stake in NeuroNation, financing an expansion into French, Spanish, Russian, and Portuguese markets.The program began with a single-payment model, later shifting to a subscription business model. The app offers some content free, while other activities are available through in-app purchases.

Newsletter

A newsletter is a printed report containing news (information) of the activities of a business (legal name; subscription business model) or an organization (institutions, societies, associations) that is sent by mail regularly to all its members, customers, employees or people, who are interested in. Newsletters generally contain one main topic of interest to its recipients. A newsletter may be considered grey literature. E-newsletters are delivered electronically via e-mail and can be viewed as spamming if e-mail marketing is sent unsolicited.

Open music model

The open music model is an economic and technological framework for the recording industry based on research conducted at the Massachusetts Institute of Technology. It predicts that the playback of prerecorded music will be regarded as a service rather than as individually sold products, and that the only system for the digital distribution of music that will be viable against piracy is a subscription-based system supporting file sharing and free of digital rights management. The research also indicated that US$9 per month for unlimited use would be the market clearing price at that time, but recommended $5 per month as the long-term optimal price.Since its creation in 2002, a number of its principles have been adopted throughout the recording industry, and it has been cited as the basis for the business model of many music subscription services.

Praenumeration

Praenumeration was an early form of the subscription business model. It was a common business practice in the 18th century book trade in Germany. The publisher offered to sell a book that was planned but had not yet been printed, usually at a discount, so as to cover their costs in advance. The business practice was particularly common with magazines, helping to determine in advance how many subscribers there would be.For example, when Johann Heinrich Zedler decided to issue a collection of works of Martin Luther he advertised that the book would be for sale through praenumeration at the Leipzig Easter Fair in 1728, with the first volume to be available at the following Michaelmas Fair in early October.

When the eleventh and final volume was issued in 1733, Zedler found himself in difficulty. He had been using praenumeration payments for the future volumes to pay the bills for previous volumes, and now the last bills were due with no future payments to cover them.

Ruckus Network

Ruckus was a free ad-supported online music service available to students at all American colleges.The service was founded in 2003 by Vincent Han and David Galper. It raised $41.5M from Battery Ventures, Shelter Capital, and others; was acquired in 2008 by Total Music, a joint venture between Sony and Universal; and was closed on February 6, 2009 when Ruckus' website was replaced with a graphic saying, "Unfortunately the Ruckus service will no longer be provided. Thanks."

Silent Circle (software)

Silent Circle SA is an encrypted communications firm based in Le Grand-Saconnex, Switzerland. Silent Circle provides multi-platform secure communication services for mobile devices and desktop. Launched October 16, 2012, the company operates under a subscription business model. The encryption part of the software used is free software/open source and peer-reviewed. For the remaining parts of Silent Phone and Silent Text, the source code is available on GitHub, but under proprietary software licenses.

Stripe (company)

Stripe is a technology company. Its software allows individuals and businesses to make and receive payments over the Internet. Stripe provides the technical, fraud prevention, and banking infrastructure required to operate online payment systems.

Subscribed (book)

Subscribed: Why the Subscription Model Will Be Your Company's Future – and What to Do About It is a 2018 business strategy book about the subscription economy written by Tien Tzuo with Gabe Weisert.

Subscription box

Subscription boxes are a recurring delivery of niche products as part of a marketing strategy and a method of product distribution. Subscription boxes are used by subscription-based ecommerce businesses, referred to as "subcom" for short, which follow a subscription business model. They target a wide range of customers and cater to a variety of specific needs and interests. It is estimated that there are 400 to 600 different kinds of subscription boxes in the United States alone and more overseas. Subscriptions vary in both cost and frequency, making them more accessible to a greater range of customers with different socioeconomic backgrounds. Subscription boxes tend to range from $10 to $100.

There (virtual world)

There is a 3D online virtual world created by Will Harvey and Jeffrey Ventrella. There Inc. was founded in the spring of 1998. Closed beta began in July 2001, with various stages of beta following, and ending with an October 2003 launch date. On March 9, 2010 - one week after the announcement of its closure on March 2, 2010 - There.com shut its doors to the public.

On May 18, 2011, Michael Wilson announced that There.com will be re-opening, on the There.com homepage. All previous members will have access to their old avatars.On May 2, 2012, There reopened to the public for a monthly subscription fee.

Trade magazine

A trade magazine, also called a trade journal, or trade paper (colloquially or disparagingly a trade rag), is a magazine or newspaper whose target audience is people who work in a particular trade or industry. The collective term for this area of publishing is the trade press.Trade publications keep industry members abreast of new developments. In this role, it functions similarly to how academic journals or scientific journals serve their audiences. Trade publications include targeted advertising, which earns a profit for the publication and sales for the advertisers while also providing sales engineering–type advice to the readers, that may inform purchasing and investment decisions.

Trade magazines typically contain advertising content centered on the industry in question with little, if any, general-audience advertising. They may also contain industry-specific job notices.For printed publications, some trade magazines operate on a subscription business model known as controlled circulation, in which the subscription is free but is restricted only to subscribers determined to be qualified leads.

TunnelBear

TunnelBear (also known as the TunnelBear VPN) is a public virtual private network (VPN) service based in Toronto, Canada. The company was founded by Daniel Kaldor and Ryan Dochuk in 2011. In March 2018, TunnelBear was acquired by McAfee.

Unsubscribe

Unsubscribe may refer to:

The unsubscribe command used within electronic mailing lists

Unsubscribing from a mailing list, where an individual or an organization sends material to multiple recipients

Unsubscribing from a subscription business model, where a customer must pay a subscription price to have access to a product or service

Webcomics Nation

Webcomics Nation was a webcomic hosting and automation service launched on July 29, 2005 by Joey Manley.

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